Bridge Street Capital says Liontown is “exceptionally inexpensive” against its peers

The recent resource upgrade for its flagship Kathleen Valley lithium-tantalum deposit in WA positions Liontown Resources (ASX: LTR) as “exceptionally inexpensive” against its pre-development lithium peers...
22nd May 2020
Resources Rising Stars

The recent resource upgrade for its flagship Kathleen Valley lithium-tantalum deposit in WA positions Liontown Resources (ASX: LTR) as “exceptionally inexpensive” against its pre-development lithium peers, according to Sydney-based Bridge Street Capital.

In a new research note, Bridge Street’s veteran resource analyst (and former fund manager) Dr Chris Baker says Kathleen Valley remains “one of the most encouraging lithium pre-development projects in WA” with the new resource sitting “within the top-tier of hard rock lithium projects globally, based on tonnes and grade”.

The updated resource, and other recent developments, support an 18cps base case valuation for Liontown by Bridge Street, which represents a significant premium to its recent trading price of 10-11c.

Importantly, Bridge Street says that 80 per cent of the new resource, of over 150mt at 1.35% Li2O, is in the Measured and Indicated category, suggesting there is “likely to be a high conversion of reserves”.

“The final resource upgrade is now complete, and investors can now look to the progressive release of inputs to the revised PFS and then DFS, likely to commence in 2021,” says Baker.

“Hopefully, we don’t need to wait too long for some definitive statements regarding metallurgical recovery of spodumene and the possible extraction of tantalum as a by-product.

“As a reminder, a tantalum stream was included in the flow sheet for the Scoping Study, but removed from the first PFS as there had been inadequate test work completed. This is currently underway,” he says.

“So, investors look forward to positive developments from Kathleen Valley, admittedly waiting for a turn in the underlying commodity price. This is only a matter of time in our view.”

Baker says Liontown being “exceptionally inexpensive” against its peers does not account for the potential value from exploration at its Moora nickel-copper-PGM project, located in the same geological region as Chalice Gold’s recent spectacular Julimar nickel-copper-PGE discovery, just north of Perth.

“The Moora project adds a nice little bit of spice to what we already consider to be a high-quality company, with its 100 per cent ownership of the Tier-1 hard rock lithium project at Kathleen Valley,” Baker adds.

“Our base case valuation for Liontown remains at 18c, but this is very leveraged to lithium grade, costs, metallurgical recoveries and the possible production of by-product tantalum.”

Meanwhile, Sydney-based equities research group Independent Investment Research (IIR) has also updated its research on Liontown, saying that the latest resource update for Kathleen Valley “doubles an already world-class lithium resource”.

“The deposit compares very favourably with regards to size and grade to the Resources of current Australian mining operations,” IIR said in a new Flash Note.

“The success of the lithium strategy has seen Liontown’s market capitalisation increase ~14-fold from A$14 million early 2017 to A$194 million,” it said.

“In summary, our view is that the results of work to date confirm Kathleen Valley as a world-class hard rock lithium project, and we expect positive news flow to continue with ongoing activities on the development studies.”

To read a full copy of the IIR research note on Liontown Resources, click here.

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